When paying employees, you can use three methods: 1) pay by the hour, 2) pay a salary, 3) pay by the piece – the number of things they make, or the tasks they complete (known as ‘piecework’).
Many organizations are now realizing, when everyone is paid the same regardless of output, there is little motivation to produce at a high level beyond the work ethic of that individual.
Piecework is a type of employment in which a worker is paid a fixed rate for each unit produced or action performed, regardless of the time. An advantage for the company is that this method of payment helps to guarantee the costs per unit produced, which is useful for planning and forecasting purposes.
In a manufacturing setting, the output of piecework can be measured by the number of physical items (pieces) produced or per operational step completed, regardless of the time required. If finished quality is equal, piecework rewards the more productive worker and offers reduced compensation to those less productive.
In a service-oriented environment, the output of piecework can be measured by how many actions are completed, as when a telemarketer is paid by the number of calls made or completed (with a bonus for positive outcomes).
Today many organizations are still managing work and compensating people the way they did 50 years ago. But, does it still work? A recent survey by Gallup says that only 13 percent of workers are actively engaged. So it may be time to change, especially with factors such as the impact of social media and advanced technologies in our lives and work.
The latest compensation trend is — Back to the future. Companies such as Best Buy, Gap and specific Microsoft locations are compensating people based on ROWE™ (Results-Only Work Environment). Reminiscent of piecework, ROWE™ gives every employee the independence to decide where and when they work.
ROWE is based on the belief that managers can stop measuring an employee’s work by whether they show up, and focus instead on creating clear job descriptions, attainable goals and better methods of measurement.
Using this system, managers must be clear with employees about the results expected and coach them toward their accomplishment. Bosses will need to switch from worrying about where people are and what they are doing, to the outcome of actual work.
In a ROWE organization, people can do whatever they want, whenever they want, as long as the work gets done in an appropriate time frame and objectives are achieved.
An example would be a programmer, or administration clerk who may decide to come into the office, not because management demands it, but because they personally have determined that is the most effective way, for them, to get the job done.
Under the hourly or salaried compensation methods, employers and employees argue over time. Management says you need to be a prisoner at your workstation nine to five, Monday through Friday. But today, people want the flexibility to deal with increasing demands of daily life. As a result, time becomes a major point of conflict.
At Netflix and Virgin, staff can take vacation whenever they want for as long as they want. Their position is, “We should focus on what people get done, not on how many hours worked. Just as we don’t have a nine-to-five policy, we don’t need a vacation policy”.
The other benefit is that now employees can really earn what they are worth. The more value they add to the company, the more they get paid.
My question is for managers this week: “Do you have a compensation plan that is equitable to all staff and ensures maximum productivity for the organization?”
(photo credit: nativemobile.com)